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Missing the point of polarisation

If there is a single questionI am currently asked more than any other about e-commerce it is, without doubt, is it an opportunity or a threat to financial advice? The answer is, as I have stated many times before, that it is both. But it is the biggest threat if you try to ignore it. Equally, I am in no doubt that IFAs have far more to gain from the emergence of new media than they have to loose.

Spending several hours last week studying the Financial Services Consumer Panel&#39s 1999 annual survey of consumers, published last month, helped reinforce this view. Many in the industry might find it strange that a document from this source demonstrates clearly both the high value that consumers place on financial advice and that there is a great need for more advice.

Unfortunately, from the IFA perspective, while recognising the value of advice far to few consumers seem to be making the distinction between tied and independent. I believe this gives a clear signal that IFAs need a new way to get the message across as to why their offering is more attractive.

Of the 13 product categories examined, in all bar one, professional advisers were identified by consumers as the most influential source of advice. Significantly, particularly in the context of this column, the source of information considered most influential in the one are where advisers did not dominate, investment trusts, the internet was considered most influential.

This must raise several questions. Investment trusts were one of the first products for which information was widely available online, both through services such as Trustnet and Interactive Investor and via the Association of Investment Trust Companies&#39 own website.

Does this suggest that earlier availability of information on this type of product has resulted in wider acceptance of the web as an authoritative source of information?

This could be seen as being in line with the recent evidence from Forrester Research identifying that once they have had internet access for over five years a majority of consumers are comfortable enough to carry out regular financial transactions online?

If so, will we see new media gradually capture a key role in influencing the purchase of other products, even more complex ones in the near future? Or is it just that they are perceived by consumers as a relatively simple product so consumers are prepared to forego more personal advice?

Personally, I have never considered an investment trust to be a really simple product. Certainly there is an argument that they carrya higher degree of risk, hence the need to be sure that consumers fully understand what they are buying.

The issue raised by this report that shocked me most of all was how few products are considered by the majority of consumers before taking a financial product.

No fewer than 67 per cent of people consulted only asingle source. The fact that the most commonly used source was financial advisers used by 53 per cent of respondents is encouraging but this should be viewed in context.

The definition of an adviser in this report included all forms of direct sales, bank and building society over the counter advice.

At the same time, there is the clearest possible indication that people at least recognise conceptually it is impor- tant to obtain financial advice.

When considering long-term products, 62 per cent of respondents either definitely agreed or tended to agree with a statement that it is essential to seek guidance from a financial adviser when considering life insurance. This increased to 70 per cent in the case of mortgages, investment and life insurance saving products and to a massive 88 per cent when considering pensions.

In each of these product areas, however, the majority of people were taking tied advice rather than seeing an IFA. Fifty-six per cent of those taking advice on a term policy took tied advice and only 23 per cent consulted an IFA.

In the mortgage area, around three times as many people consulted tied advisers as opposed to IFAs. Even in pensions, so often considered IFA territory, 43 per cent of respondents took advice on a personal pension from a tied agent and only 22 per cent took the IFA route.

So at a time when consumers clearly recognise the value of advice, why do we see a situation where, according to ABI figures, two-thirds of term policies are not sold through IFAs?

For anyone who believes in the importance of maintaining the current polarised regime, these figures seem to suggest to me that consumers do not really understand the difference between independent and tied advice.

At this point, I must admit that I am increasingly of the opinion it is in the interests of consumers to revise the current polarisation rules for, if as this report suggests, so many people are missing the point, would the industry not be better able to serve the public under some new structure? This is a debate that will doubtless continue for some time.

In the meantime, what can be done to help get the message across? If consumers do not understand the diversity of product choice available to them, then the IFA sector needs to take action to make this clear.

Making information and tools to educate the consumer available online is, I believe, an ideal way to approach this. Product comparison services such as the one from AssureSoft I looked at last week would be one example, others might include shortfall calculators for pensions, life cover calculators and an interactive comparative term insurance system.

It is a regrettable fact that the IFA community is not getting its message across as well as it might. There must be an argument for making more of the information that advisers have at their fingertips available to the public.

In my opinion, all this makes a sound argument for using e-commerce to communicate service to clients.

There is, however, one issue I should flag. Although the market share split between tied and independent as shown above is listed on page 55 of the report, page 86 shows a completely conflicting set of data.

According to this, only 36 per cent of people who took advice before buying a life protection product consulted a tied adviser and 64 per cent consulted an IFA. In the mortgage area the split is shown as 60-40 in favour of IFAs, with investments and pensions both showing 54 per cent IFA and 46 per cent tied.

It is only in the area of using life insurance as a savings product that the tied adviser is shown as dominating with a 72 per cent share.

Confused? So am I. But, according to the Treasury, the former figures represent all people questioned who have ever bought a product, whereas the latter are those who have bought in the last 12 months. They concede these statistics may be “slightly confusing”.

Frankly only the Government or a regulator could publish a document with such contradictions. But I still believe the courses of action outlined above will generate more business for IFAs.


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